Ashley's rebellion a 'battle for control’ of Debenhams

Mike Ashley’s shock revolt at Debenhams’ shareholder meeting could be the first salvo in an attempt to gain control of the business, retail experts have said.

Ashley, who owns almost 30% of Debenhams, managed to win enough votes at the retailer’s annual general meeting on Thursday to force chairman Sir Ian Cheshire to resign, and to kick chief executive Sergio Bucher off the board.

In a statement Debenhams said the board had full confidence in Bucher despite his failure to be re-elected to the board: “The board is mindful of its responsibilities to all shareholders and has full confidence in Sergio and in the management’s plan to reshape the business.

“As a result, the board and Sergio have agreed that he should continue as CEO of Debenhams plc, reporting to the board. The board believes that it is in the best interests of Debenhams plc that the executive team remains fully focused on delivery of the plan.”

Retail analyst Nick Bubb said Bucher continuing as chief executive was not credible: “Symbolically it is a major defeat for the company (and a shocking result for its advisers), at a very sensitive time in terms of the discussions with the banks. And it is not tenable for the CEO not to be on the board. The danger now is that Mike is allowed, in all the confusion, to buy the company on the cheap.”

One property agent said he expected Ashley to begin wresting control of the business in the coming weeks: “Ashley’s game now is just to get hold of the business. Forget shareholder value – it’s well past that stage, and he’s lost 90% of his investment [from the depreciation in value of shares]. That’s an expensive investor return, but if he gains the business, it’s a cheap deal.

“Sergio is a thorn in his side as they don’t seem to have a relationship at all and Sergio has a strategy. If there’s no strategy, it’s easier to see [Debenhams] become a target.”

This sentiment was echoed by retail analyst Richard Hyman, who believed that the power struggle between Ashley and the Debenhams management will be a defining factor over the next few weeks and months.

“It was an ambush that the Debenhams management seemed not to anticipate at all. It is clearly the first shots fired in a battle [for the business]. You can tell from the actions of the shareholders and the response for the company – the board are going to fight for their lives.

“In a way, that battle is a separate reality from the other story of what is going on out there in the high street. And the portents are not good. You can see from the figures that Debenhams is a long way from being able to hold its own.”

One property agent said Ashley’s hand had been forced as rumours swirl of Debenhams mulling a debt-for-equity swap.

“If Ashley hadn’t taken this move, call it a rebellion or a coup, he would potentially lose all of his value from the shares. His stake isn’t worth much any more, as the business is only valued at around £50m. Any debt-for-equity swap would have diluted his ownership to effectively nothing. He may still try to buy the debt, but as an off-market solution.”

Julie Palmer, partner at professional services consultancy Begbies Traynor, noted that financial pressures are mounting on Debenhams and it needs to act quickly to revive its fortunes: “Having already confirmed up to 50 store closures in October, the retailer will need to implement further cost reduction strategies if it is to avoid the same fate as House of Fraser.

“As Brexit approaches, which continues to cause uncertainty across the British economy, and with consumer confidence falling, Debenhams is running out of time to secure its long-term future. Although Mike Ashley’s offer of £40m was previously snubbed before Christmas, it may be becoming an ever more attractive proposal for the struggling department store.”

In a note, investor analysts Jefferies agreed the business was operating on “borrowed time”: “Sergio Bucher, the board, most shareholders, and even perhaps the disaffected shareholders, believe Debenhams’ strategy is the right one (an improved offer, more social shopping, fewer, but redesigned, stores), just that it needs to be implemented faster, given the market environment.

“We believe there is value in Debenhams’ £1.8bn of sales including £500m online (excluding Magasin [du Nord, the Danish department store Debenhams owns and is hoping to sell] and the 50 worst-performing stores) but without a sale of Magasin to relieve the balance sheet pressure, Debenhams is going to need plentiful stakeholder support to navigate its way out of the current choppy waters.”

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